New Final Stark Rules: CMS Enacts Sweeping Changes

Executive summary

On July 31, 2008, the Centers for Medicare and Medicaid Services (CMS) posted its 2009 Final Hospital Inpatient Prospective Payment Systems rule (“2009 Final Rule”),¹ which is scheduled to be published in the Aug. 19, 2008, Federal Register. The 2009 Final Rule contains final Stark rules settling many of the proposals that came out of CMS over the course of the last year, and often extends far beyond the original proposals, with the intended effect of undermining many common hospital/physician joint venture models.

Specifically, the 2009 Final Rule finalized rules concerning physician “stand in the shoes,” “alternative method of compliance,” an exception for obstetrical malpractice insurance, provisions regarding ownership or investment interests in retirement plans, the burden of proof in appeals and the “period of disallowance,” all of which will become effective Oct. 1, 2008.

The 2009 Final Rule also contains final Stark rules dealing with percentage-based compensation, “per-click” arrangements, and more restrictive requirements for “under arrangement” transactions, which, due to the expectation that they will require significant restructuring of existing transactions, will be effective Oct. 1, 2009.

The Stark-related topics covered in the 2009 Final Rule are as follows:

• Percentage-Based Leasing Arrangements: CMS does away with all percentage-based compensation in the context of space and equipment leases.
  
• “Per-Click” Leasing Arrangements: CMS severely restricts the use of unit-of-service-based (“per-click”) leasing arrangements.
  
• Services Provided “Under Arrangements”: Both the hospitals that bill for services provided under arrangements as inpatient or outpatient hospital services and the entities that provide those services will be considered to be furnishing “designated health services” (DHS) under Stark. This change will effectively eliminate referring physicians' ability to own interests in such service providers.
  
• “Stand in the Shoes” Provisions: Only physicians who have an ownership or investment interest in their physician organizations will be required to stand in the shoes of those organizations. Complying with a Stark exception will now be much easier for academic medical centers, integrated tax-exempt health care delivery systems, and physician organizations that are not owned by referring physicians.
  
• “Set in Advance” and Amendments to Agreements: In the preamble to the new “stand in the shoes” rules, CMS states that it is reversing its prior position and permitting multi-year agreements to be amended after the first year of their terms without violating Stark's “set in advance” requirement.
  
• Period of Disallowance: CMS establishes a bright-line rule that sets the outer limit of the period during which referrals are prohibited as a result of a financial relationship that fails to satisfy a Stark exception. Disallowance begins when the relationship fails to satisfy an exception and ends no later than the date that it satisfies an exception and the parties have returned any overpayments or paid any underpayments of compensation.
  
• “Alternative Method for Compliance”: If a financial relationship fully complied with an applicable Stark exception, except with respect to a signature requirement, Medicare payments to the entity will be permitted if the signature requirement is complied with within 30 or 90 days after the commencement of the relationship. The longer period applies only if the failure to comply with the signature requirement was inadvertent. 
  
• Disclosure of Financial Relationships Report: CMS provides additional details about this survey of physician financial relationships that it proposes to send to up to 500 hospitals. 
  
• Exception for Obstetrical Malpractice Insurance Subsidies: CMS adds an additional exception for subsidies provided by hospitals, federally qualified health centers and rural health clinics that is more flexible than the current exception.
  
• Ownership or Investment Interest in Retirement Plans: CMS narrows the retirement plan exception to ensure that referring physicians cannot use it to circumvent Stark's restrictions on ownership of DHS entities by investing in those entities through their employer's retirement plans. Now, only the physician's ownership or investment interest in the employer is protected by the exception.
  
• Burden of Proof: CMS clarifies that when a DHS entity appeals a claim for payment that was denied on the basis that it was furnished pursuant to a prohibited referral, the DHS entity has the burden of proving that the service was not furnished pursuant to a prohibited referral.

CMS's final rules have major implications for the industry, particularly with respect to hospital/physician joint venture arrangements. These rules were far broader in scope and impact than were originally proposed, and CMS has indicated that it will continue to enact further regulations tightening aspects of the Stark law, which are perceived to permit Medicare program abuse.

The extent of these changes, coupled with CMS's repeated commentary that it has no discretion in the application of these rules and that they will be strictly applied, regardless of the ultimate financial impact to the Medicare program or the parties' intent or knowledge, is ominous.

Of potentially equal significance, the new rulemaking's delayed effective date for certain provisions should be regarded as a shot from a starter's pistol for organizations that must amend or terminate relationships in order to achieve compliance by Oct. 1, 2009. For the budget driven health care industry, the impact of this mandate, both financially and culturally, cannot be underestimated.

The end of percentage-based compensation for rental of office space and equipment (effective Oct. 1, 2009)

Last summer, CMS proposed doing away with percentage-based compensation arrangements except in the context of services agreements where the services are personally performed. In these final rules, CMS declines at this time to limit percentage arrangements to only personally performed services; instead, CMS does away with all percentage-based compensation in the context of space and equipment leases.

Specifically, the 2009 Final Rule amends the current Stark exceptions for the rental of office space, the rental of equipment, fair market value compensation arrangements, and indirect compensation arrangements to prohibit the use of compensation formulae for space or equipment leases based on a percentage of the revenue raised, earned, billed, collected or otherwise attributable to the services performed or business generated in the leased office space or to the services performed on or business generated by the use of leased equipment.

In implementing this rule, it appears that CMS effectively ends all percentage-based arrangements for the lease of space or equipment, whether structured as direct or indirect financial arrangements. No doubt these types of arrangements will need to be restructured prior to the Oct.1, 2009, effective date of this rule. Failure to do so, when required, will effectively disqualify for payment any DHS rendered pursuant to a referral from physicians with whom the DHS entity has a noncomplying lease arrangement.

It is also noteworthy that in connection with these rules, CMS states that it is choosing not to extend, at this time, a similar prohibition against percentage-based fees for other arrangements (e.g., non-professional, management services); however, it intends to monitor these arrangements, and may similarly limit them in the future. It is also significant to note that CMS highlights the fact that this new prohibition does not impact the parties' ability to enter into flat-fee leases or use other permissible compensation methodologies, such as per-procedure compensation (if available, see below).

Prohibition on unit of service (“per-click”) leasing arrangements; comments on “time-based” arrangements (effective Oct. 1, 2009)

Although in its comments relating to percentage-based leasing arrangements CMS raised the possibility of utilizing per-procedure payment formulae, under its new final rule, CMS restricts the use of “per-click” payment methodologies for leasing arrangements under the space and equipment lease exceptions, the fair market value exception and the exception for indirect compensation arrangements. CMS makes clear that the limitation on per-click payments applies regardless of whether the physician is personally the lessor or whether the lessor is an entity in which the referring physician has an ownership or investment interest. This limitation applies where the lessor is a DHS entity that refers patients to a physician or physician organization lessee.

In practical terms, this new rule, coupled with the ban on percentage-based compensation formulae, undermines current leasing joint venture arrangements whereby referring physicians and hospitals or others have formed a joint venture entity for the purpose of leasing space or equipment to a hospital or other DHS entity on a variable fee basis.

Specifically, these final rules now require that to the extent there are any physician investors in the joint venture leasing entity that refer to the lessee entity, the lease payments between the lessee and the joint venture may not be based on either (i) a percentage of revenue raised, earned, billed, collected or otherwise attributable to the services performed or business generated in the space or through use of the equipment, or (ii) per-unit rental charges, to the extent that such charges reflect services provided to patients referred between the parties.

Effectively, the indirect compensation exception has been eviscerated with respect to space and equipment leasing transactions and, as CMS acknowledged, numerous joint venture transactions will need to be restructured.

In addition to these changes, CMS commented on “time-based” rental payments. While CMS is abstaining from proposing any rules addressing block leases and similar arrangements at this time, it noted that such arrangements are potentially problematic, and went so far as to state that “on demand” rental agreements are effectively per-use or per-click arrangements, and that CMS considers them to be covered by the new final rules (i.e., they are now prohibited for leases of space and equipment). With respect to block leasing arrangements, CMS stated that it will continue to study the ramifications and may propose rulemaking in the future.

Bad news for “under arrangements” service providers (effective Oct. 1, 2009)

The 2009 Final Rule changes the definition of “entity” in the Stark II regulations in a way that will have a significant effect on physician-owned entities that provide services to hospitals “under arrangements.” Currently, this definition provides that only the person or entity that bills for DHS is considered to be furnishing the DHS. When the 2009 Final Rule provision becomes effective, the person or entity that performs services that are billed as DHS will be considered to be furnishing DHS. As a practical matter, this means referring physicians likely will not be able to hold ownership or investment interests in “under arrangements” service providers.

Under the current Stark regulations, because the “under arrangements” service provider is not considered a DHS entity, the Stark analysis focuses on the relationship between the hospital and the referring physicians associated with the service provider. These arrangements are analyzed as either direct financial arrangements (if a referring physician stands in the shoes of the service provider) or indirect financial arrangements (if “stand in the shoes” does not apply) and generally can be structured to fit within a direct or indirect compensation exception.

The new regulations treat an “under arrangements” service provider as an additional DHS entity, which means that any financial relationships between the service provider and the physicians who refer patients to it for services the hospital bills for will need to comply with a Stark exception. Direct compensation exceptions should be available to protect referrals from the service provider's non-owner physicians, but very few exceptions are available for referring physicians who own an interest in the service provider. In most cases, the only exception that could apply is the exception for rural providers.²

As a result, the change in the definition of “entity” will effectively eliminate referring physicians' ability to own interests in “under arrangements” service providers. CMS provides an Oct. 1, 2009, effective date for these regulations to allow time for restructuring existing under arrangements relationships.

In the preamble, CMS makes clear that even if a service provider, such as a cardiac-catheterization or sleep lab, performs services that would not be DHS if they were provided and billed by the service provider in a freestanding setting, the services become DHS and the service provider becomes a DHS entity when a hospital bills for those services as inpatient or outpatient hospital services.³

CMS declines to define in the regulations when an entity is considered to be “performing” DHS, saying that the common meaning of the term should apply. CMS comments in the preamble that it considers a physician or physician organization to have performed DHS “if the physician or physician organization does the medical work for the service and could bill for the service, but the physician or physician organization has contracted with a hospital and the hospital bills for the service instead.”⁴

CMS states that it would not consider a lessor of equipment or space, a provider of management, billing services, or personnel, or an entity that furnishes supplies that are not separately billable but are used in the performance of medical services to be performing DHS.⁵ This language fails to clarify whether a turnkey management service provider will be considered to be performing DHS, and this lack of clarity may well have a chilling effect on a number of business arrangements.

“Stand in the shoes” becomes more flexible

In the 2009 Final Rule, CMS simplifies the “stand in the shoes” (SITS) doctrine for physicians and their physician organizations and addresses concerns that academic medical centers (AMCs) and integrated, tax-exempt health care delivery systems (IDSs) had raised.⁶ Under the current SITS doctrine, a physician is deemed to stand in the shoes of his or her physician organization, which means any compensation arrangement between the physician organization and a DHS entity must satisfy a Stark exception for direct compensation arrangements.⁷

The new SITS rules provide that that only a physician who has an ownership or investment interest in his or her physician organization is deemed to stand in the shoes of the organization. Other physicians (i.e., employees, independent contractors, and physicians whose ownership or investment interest is titular only) are permitted to stand in the shoes of their physician organizations, but are not required to do so.

CMS highlights in the preamble that it is providing non-owner physicians this option, but since it is more difficult to comply with the Stark exceptions for direct compensation arrangements than it is to comply with the indirect compensation exception, in most cases a physician would not choose to stand in the shoes of his or her physician organization.⁸ As a result, the flexibility afforded by this option is of little practical benefit.

The requirement in the new SITS rules that an owner-physician be deemed to stand in the shoes of his or her physician organization does not apply:

• to an arrangement that satisfies the requirements of the Stark exception for AMCs;
  
• to a physician whose ownership or investment is titular only (i.e., if the interest excludes the ability or right to receive any of the financial benefits of ownership or investment); or
  
• during the original term or the then current renewal term of an arrangement that satisfied the requirements of the indirect compensation arrangements exception as of Sept. 5, 2007 (i.e., indirect compensation arrangements that are currently grandfathered under the Stark II Phase III final rule's SITS provisions).

This last exception continues the grandfathering of certain indirect compensation arrangements and lets those agreements continue to avoid SITS altogether until the expiration of their current term (assuming that term has been in effect since at least Sept. 5, 2007). Grandfathered agreements that are to be renewed prior to Oct. 1, 2008, will need to comply with the current SITS rules, in which all physicians in a physician organization stand in the shoes of the physician organization, while agreements that are to be renewed after that date will need to comply with the new, more flexible SITS rules.

The new SITS rules should be welcome news for AMCs and IDSs. Arrangements that comply with the AMC exception now are explicitly exempted from the rules. Furthermore, the many AMCs and IDSs that currently rely on the indirect compensation arrangements provisions in the Phase II regulations will be able to continue to do so under the new rules, because their physicians will not be required to stand in the shoes of their faculty practice plans or other physician organizations.

For other physician organizations that are not owned by referring physicians, the news is also good. These organizations will not be required to have any physicians stand in their shoes, which means their arrangements with DHS entities can be structured either to fall outside the definition of an indirect compensation arrangement under Stark or to satisfy the requirements of the indirect compensation arrangements exception. As a result, these arrangements will not be required to comply with the one-year term or “set in advance” requirements found in many direct compensation exceptions and will regain the flexibility they had under the Stark II Phase II regulations.

An added bonus: CMS modifies its Phase III position on amendments to agreements

In response to a comment in the discussion of the stand in the shoes doctrine, CMS indicates that it has reconsidered its position, taken in the Stark II Phase III final rule, that a multi-year agreement for rental of office space or a personal service arrangement may not be amended during its term without violating the Stark exceptions' requirement that the compensation under the arrangement be “set in advance” for the term of the agreement. This position was widely criticized as exalting form over substance and imposing additional transaction costs on the parties to these agreements by requiring them to terminate an existing agreement and enter into a new agreement on modified terms rather than simply amending the agreement.

In a welcome change, CMS states that in light of the revisions it is finalizing with respect to percentage-based and per-click compensation formulae, it believes that it is able to interpret the “set in advance” requirement to permit an agreement to be amended as long as the following criteria are met:

• All of the requirements of an applicable exception are satisfied.
  
• The amended rental charges or compensation (or the compensation formula) is determined before the amendment is implemented, and the formula is sufficiently detailed that it can be verified objectively.
  
• The formula for amended rental charges does not take into account the volume or value of referrals or other business generated by the referring physician.
  
• The amended rental charges or compensation (or the compensation formula) remain in place for at least one year from the date of the amendment.⁹

CMS also states that this rule applies to all of the Stark exceptions for compensation arrangements that include a one-year term requirement for satisfying the exception. Note that this change is not a regulation; rather, it is CMS's current interpretation of Stark's “set in advance” requirement.

Rules around the “period of disallowance” are finalized as proposed

Earlier this year, CMS proposed rules to address the period for which a physician may not refer DHS to an entity and for which the entity may not bill Medicare because the financial relationship between the referring physician and the entity fails to satisfy all of the requirements of a Stark exception (referred to as the “period of disallowance”). These rules have now been finalized, largely in the form of the proposal, and essentially provide that from the time that the financial relationship fails to satisfy a Stark exception to a period no later than the date that the financial relationship satisfies all of the requirements of a Stark exception,¹⁰ a physician may not refer DHS to the entity and the entity may not bill Medicare.

CMS was careful to point out that the rule creates an “outside date” and that parties are free to take the position (presumably if questioned in the context of an enforcement action) that the period of disallowance ended sooner on the theory that the financial relationship ended earlier. However, CMS cautioned that the beginning and end dates of the financial relationship for purposes of the disallowance period do not necessarily coincide with the term of the parties' written agreement.

In practice, CMS provided the following example to illustrate how the period of disallowance would apply: Where a party (e.g., a physician) has paid rent in an amount below fair market value for each of the months 1-6 under a lease, unless and until the lessee has paid the lessor (e.g., a hospital) the compensation to bring the rental payments for months 1-6 up to fair market value, the period of disallowance would apply. In other words, the physician lessee may not refer DHS to the hospital and the hospital may not bill Medicare until the physician pays the hospital the amounts owed for months 1-6, even if the lease expires prior to such payment.

In the course of describing this new final rule, CMS clarifies its view that simply correcting a financial relationship that falls outside the applicable Stark exception due to technical noncompliance is not adequate. CMS clearly states in the commentary that parties shall not have the right to “cure” defects and that “all of the requirements of the [Stark] exception must be met at the time the referral is made … [T]he statute does not contemplate that parties have the right to back-date arrangements, return compensation, or otherwise attempt to turn back the clock so as to bring arrangements into compliance retroactively.”

Additionally, while describing the strict compliance that is expected of providers, CMS notes that the financial impact of the nonconformance is irrelevant, and emphasized that since Stark is a strict liability statute, CMS is concerned with any violation by (i) a physician referring DHS to an entity, or (ii) an entity billing Medicare for DHS when the financial relationship between the physician and the entity does not comply with a Stark exception.

“Alternative method for compliance”—CMS provides limited flexibility for technical defects due to signature requirements

Following a discussion regarding the period of disallowance in which CMS was careful to emphasize the inflexibility of the Stark law and its limited authority to make exceptions and avoid extreme results, CMS adopted a limited amendment to existing exceptions. The amendment permits payments to an entity that fully complied with an applicable Stark exception, except with respect to a signature requirement, if (i) the failure to comply with the signature requirement was inadvertent and the entity rectifies the failure to comply within 90 days after the commencement of the financial relationship (without regard to whether referrals have occurred or compensation paid), or (ii) the failure to comply with the signature requirement was not inadvertent and the entity rectifies the failure within 30 days after the commencement of the financial relationship. This exception may be used by an entity only once every three years with respect to the same referring physician.

The Disclosure of Financial Relationships Report is (still) coming

The Disclosure of Financial Relationships Report (DFRR) will require up to 500 general and specialty hospitals to provide CMS detailed information about their financial relationships with physicians and copies of relevant documents. Originally proposed in a Paperwork Reduction Act (PRA) filing in 2007, the DFRR was withdrawn, revised and resubmitted to the Office of Management and Budget for review and approval. It will then be published in the Federal Register and will be subject to a 30-day comment period. Hospitals that receive the DFRR will have 60 days to respond.

In the 2009 Final Rule, CMS provides some updated information about the DFRR:

• CMS's estimate of the average number of hours to complete the DFRR has been increased from 31 to 100 hours, and the projected costs per hospital to complete the DFRR have increased from $1,550 to $4,080.
  
• CMS may decide to decrease (but not increase) the number of hospitals that will receive the DFRR.
  
• CMS notes that although it has authority to impose civil monetary penalties of up to $10,000 per day for late submissions, it is using the 2009 Final Rule to inform the public that it will issue a letter to any hospital that does not return a completed DFRR, inquiring as to why the hospital failed to do so, before imposing such penalties.
  
• CMS reiterated that it will give hospitals extensions of time to complete the DFRR submission “upon a demonstration of good cause.”
  
• The DFRR will be a one-time collection effort. CMS may propose future rulemaking to use the DFRR or some other instrument as a periodic collection instrument.
  
• CMS will allow hospitals that have uniform rental, recruitment or personal services agreements to submit only one copy of each such agreement, instead of having to provide signed copies of each individual agreement. To be “uniform,” all of the material contract terms must be the same.

We continue to believe that for most hospitals, responding to the DFRR will take much longer than CMS estimates.

Obstetrical malpractice insurance subsidies

Currently, the Stark II regulations provide a compensation exception for remuneration to a referring physician that meets all of the conditions of the obstetrical malpractice insurance subsidies safe harbor under the federal anti-kickback statute. The 2009 Final Rule adds an additional exception that differs from the current exception (and safe harbor) in the following ways:

• The current exception protects subsidies by any entity. The new exception only protects subsidies by a hospital, a federally qualified health center, or a rural health clinic.
  
• The current exception requires at least 75 percent of the physician's obstetrical patients to reside in a Health Professional Shortage Area (HPSA) or medically underserved area (MUA) or be members of a medically underserved population (MUP). The new exception also counts toward the 75 percent requirement patients who reside in a rural area or an area with a demonstrated need for the physician's obstetrical services.¹¹
  
• The current exception requires that the physician's practice be located in a primary care HPSA. Under the new exception, if at least 75 percent of the physician's obstetrical patients reside in a MUA or are members of a MUP, there are no restrictions on the practice location. If this 75 percent requirement is not met, the physician's medical practice must be located in a rural area, a primary care HPSA, or an area with demonstrated need for the physician's obstetrical services.
  
• For a physician with a part-time obstetrical practice, the current exception allows the payment only of those premium costs that are attributable exclusively to the obstetrical portion of his or her malpractice insurance and related exclusively to obstetrical services provided in a primary care HPSA.
  
  The new exception allows payment of the obstetrical portion of malpractice insurance that is related exclusively to services provided in a rural area, primary care HPSA, or an area with demonstrated need for the physician's obstetrical services, or in any area if at least 75 percent of the physician's obstetrical patients treated in the coverage period resided in a rural area or MUA or were part of an MUP.
  
• The new exception requires that the arrangement not violate the anti-kickback statute or any federal or state law or regulation governing billing or claims submission. Because the new exception is more generous in some respects than the anti-kickback safe harbor, DHS entities and physicians who rely on this exception will not be protected by the safe harbor.

Ownership or investment interests in retirement plans

The Stark II regulations currently provide that ownership and investment interests do not include an interest in a retirement plan. CMS is concerned that a referring physician might circumvent the self-referral prohibition by investing through his or her retirement plan in a DHS entity that the physician could not have invested in directly. To address this concern, CMS is revising the retirement plan exception to except only ownership or investment interests in an entity “that [arise]from a retirement plan offered by that entity to physician (or a member of his or her immediate family) through the physician's (or immediate family member's) employment with that entity.”

For example, assume a physician is employed by a physician group that furnishes DHS (“Entity A”) and, through his or her employment with Entity A, has an interest in Entity A's retirement plan. Assume further that Entity A's retirement plan invests in an imaging facility (“Entity B”), which also furnishes DHS. The revised regulations ensure that the physician's direct ownership or investment interest in Entity A that results from his or her retirement plan interest fits within the retirement plan exception, but the indirect ownership or investment interest in Entity B that results from the retirement plan's investment in Entity B will not. Accordingly, the physician would need to rely on another ownership or investment exception, just as the physician would if he or she invested in Entity B directly.

One concern raised by the new exception is its failure to address the foundation model of physician employment adopted in response to the corporate practice of medicine doctrine in some states. In these states, a foundation may be the common law employer of a group of physicians and may pay their compensation, withhold taxes, and provide them a retirement plan. However, these physicians may contractually be employed by another organization that is authorized in the state to employ physicians, such as a professional corporation, that contracts with the foundation to provide the physicians' services.

For purposes of this exception, unless “employment” is read to refer to the common-law employment relationship that exists between the foundation and the physicians, and not the technical relationship with the professional corporation that exists solely for legal compliance purposes, physicians employed through a foundation model could be unable to participate in a retirement plan provided by the foundation and refer patients to the foundation for DHS unless another exception applies. Further clarification on this point from CMS would be welcome.

Burden of proof

In the 2009 Final Rule, CMS clarified that when a DHS entity appeals a claim for payment that was denied on the basis that it was furnished pursuant to a prohibited referral, the DHS entity has the burden of proof (also referred to as the burden of persuasion) at each level of the appeals process to establish that the service was not furnished pursuant to a prohibited referral. The burden of production on each issue at each level of appeal is initially on the DHS entity, but may shift to CMS or its contractors depending on the evidence the DHS entity presents. CMS noted that this approach is consistent with the current Medicare claims appeals process.

FOOTNOTES

1 An advance copy of the 2009 Final Rule is available at http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/CMS-1390-F.pdf. The Stark-related provisions of the rule begin at page 972 of the advance copy, and a table indicating the rulemaking in which the various revised provisions were proposed is found at pages 976-77.

2 The Stark II regulations provide an exception for ownership or investment interests for DHS furnished in a rural area by a rural provider. To qualify as a rural provider, the entity must furnish at least 75 percent of its DHS to residents of a rural area. A rural area is defined as any area outside an urban area, and an urban area is defined as a Metropolitan Statistical Area, a New England County Metropolitan Area, or a New England county listed in CMS regulations.

3 Lithotripsy appears to be the only exception to this rule. CMS states in the preamble that lithotripsy will not be considered a DHS, whether it is billed by the service provider or by a hospital under arrangements.

4 CMS cautions that a service provider may not avoid the regulations simply by arranging for the billing entity or some third party to complete a medical service that the provider has substantially completed.

5 CMS declines to treat physician-owned medical device companies as DHS entities at this time, but notes that it may propose rules to address this issue in the future.

6 In the 2009 Final Rule, CMS does not finalize the “entity” version of SITS that would have considered a DHS entity to stand in the shoes of an organization in which it had a 100 percent ownership interest, commenting that “a measured approach to the overall ‘stand in the shoes' regulatory scheme is warranted and appropriate.” CMS nonetheless warns that “arrangements that attempt to evade restrictions on payments for referrals by using interposed organizations are highly suspect under the fraud and abuse laws” and “could violate the physician self-referral law, constitute unlawful circumvention schemes, or violate the anti-kickback statute.”

7 Prior to SITS, the relationship between a DHS entity and a physician who contracted with the DHS entity through his or her physician practice was analyzed as an indirect compensation arrangement under Stark. Many of these arrangements either fell outside of Stark's indirect compensation arrangement definition (and thus did not need to fit within a Stark exception at all) or could easily be structured to fit within the Stark exception for indirect compensation arrangements (which imposes fewer requirements than most of the direct compensation exceptions).

8 Rather than rely on an arrangement falling outside the definition of an indirect compensation arrangement, a more conservative physician may elect to stand in the shoes of his or her physician organization for the added certainty that compliance with a direct compensation exception affords.

9 By this language, CMS presumably means that the amended compensation may not be changed again for at least one year from the date of amendment, rather than requiring that the compensation (and thus the agreement itself) remain in place for at least a year after the amendment date.

10 When the noncompliance is due to the payment of excess or insufficient compensation, in addition to satisfying all of the requirements of an exception, a party that has received excess compensation must return all of the excess and the party that has underpaid compensation must pay all of the additional compensation required.

11 “Demonstrated need” must be determined through the Stark advisory opinion process.